Market turmoil hits Scottish Friendly

Published on Saturday 9 May 2009 14:25

SCOTLAND'S biggest indpendent mutual insurer, Scottish Friendly, will this week publish its annual report revealing that investments have been badly hit by market turmoil and assets under management have been cut.

The Glasgow-based friendly society saw its with-profits fund make a negative return of 19.6 per cent and its assets dropped to 704 million last year from 834m in 2007. However, its fund did not perform as badly as the FTSE 1000 which was down 28.3 per cent last year.

Michael Walker, who was appointed chairman of Scottish Friendly at the start of this year, said 2008 brought "unprecedented economic challenges". However, he added that the group had entered the downturn strongly capitalised with a diversified business.

Chief executive Fiona McBain described 2008 as "one of the most difficult years in recent history in the financial services industry".

She said: "I'm still feeling exhausted by 2008. I've been talking about whether the second half was the worst since the 1930s or even the worst ever. It's been an extreme situation."

While she added that she was well aware that the fund performance and the knock-on effect on bonus payments was hard for policy holders, there are positive elements in Scottish Friendly's strategy. She said its fund still provides a good long-term investment which is relatively low-risk and low-cost. The performance would have been worse if the firm had not made a timely switch to lower risk assets.

She said that despite the turbulence in the second half of last year, Scottish Friendly's growth strategy was working. It focuses on organic growth, business process outsourcing and mergers and consolidation.

It was part of a consortium that was interested in a merger with the Dunfermline Building Society, which ended up being taking over by its English rival, Nationwide.

Scottish Friendly and partners approached Dunfermline in mid-March but were not given permission to hold talks until just before Nationwide concluded the deal. McBain said Scottish Friendly started looking at possible merger targets last year when legislation was introduced that allowed mutuals to combine. She explained that Scottish Friendly was interested in buying Dunfermline's retail savings book. She said that Scottish Friendly is not desperate for mergers but it is examining possibilities.

It has diversified into business processing and counts Nucleus, a Scottish "wrap" company, and insurance giant Aviva among its customers. It also has a partnership with Soccer Saving to provide savings plans to supporters of football clubs, including Rangers and Celtic.

The firm recently moved to new headquarters in Glasgow and has increased the number of employees to 140 from 55 in 2006. McBain has appointed her first deputy chief executive, promoting Jim Galbraith from the position of actuary and director of strategy.